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Understanding Money Markets
When you are a loan officer, you may have clients with money market accounts. It’s important to understand what a money market account is and how it works. That way, you can educate clients about the best investing options for them.
What is a Money Market?
A money market is a type of savings account offered by banks and credit unions. They are similar to a traditional to savings accounts in that they earn interest, but at a slightly higher rate. The bank will take the money clients invest to create other loans or investments.
The purpose of a money market account is to provide investors with a reliable place to invest assets that are liquid and easily accessible. These accounts are low-risk and low-return. Their minimum balances usually range from $500 – $50,000 depending on which lending institution your client obtained the money market from. The amount of interest a money market account pays, depending on where your account comes from.
Pros of Money Market
There are a couple advantages to having a money market, including:
- Return on investment: Money markets usually have a higher interest rate than traditional savings accounts
- Liquidity: Your clients have the convenience of having cash available to them.
- Safety and security: Even though the interest rate may vary while your client’s money is in the account, it will be protected by the bank or lending institution. Some people also use a money market account as a place to hold their emergency fund.
Cons of Money Markets
There are also some disadvantages of having a money market account including:
- Withdrawals: Most money market accounts will only allow you to withdraw money three to six times a year at most, so it’s not a good option if your client needs the money and has gone over their limit.
- Balance: Money markets usually have a higher minimum balance requirement than a regular savings account
The best type of money market accounts come with lower minimum balances, higher yields, fewer fees and the amount of access to your funds. So make sure you advise your clients to shop around for a money market account that has good rates and access to their funds. Doing so will help them find the right place for their money.